PJM capacity costs are surging: here’s what decision-makers need to do now

Electricity bills across PJM are rising fast, with capacity and transmission charges doing much of the work. For large energy users, this nonenergy line item can rival, or even exceed, the commodity itself. Understanding what’s driving the increase, what to expect in the next few years, and which actions reliably reduce exposure is essential to protecting margins.  

Here, we outline the nature of the challenge, and dive into what decision-makers can do to respond and come out ahead. 

What’s driving the spike? 

PJM must ensure enough generation is available to meet peak demand reliably. To do that, it runs a capacity market that pays generators for being available to meet potential demand. Every customer in PJM funds those payments, and each customer’s share is tied to their demand during the system’s five highest peak hours of the prior summer: the “five coincident peaks” (5CPs). 

Prices in PJM’s capacity market have jumped as new supply has lagged demand growth, and as some aging units have retired. In response to concerns about bill impacts and market volatility, PJM and regulators have taken steps to contain costs, including a temporary cap and floor on capacity prices and related market reforms. Recent auctions have cleared at that cap, signaling tight supply/demand fundamentals. 

Transmission charges, which are levied similarly to Capacity charges, are also rising as utilities invest in grid upgrades and reliability projects, further pressuring total delivered costs. 

What the cap does — and doesn’t — do 

A price cap can limit increases, but it doesn’t roll back costs that are already embedded in bills. And by design, the cap is a temporary measure. With long development timelines for new generation and ongoing interconnection constraints, along with a cap that is artificially lowering the payments to potential generation, elevated capacity prices are likely to persist once the cap expires in 2030.  

The result: even if wholesale energy prices are flat, the delivered cost of power can climb because of capacity and transmission. That makes operational flexibility and targeted investments to reduce 5CP exposure more valuable than ever. 

Regulatory backdrop 

The regulatory shift toward price intervention began in December 2024, when Pennsylvania filed a landmark FERC complaint challenging PJM’s market outcomes, leading to the mandated  price cap and floor in spring 2025.  

Political pressure reached a new peak recently when governors from all 13 PJM states issued a joint Statement of Principles with the Department of Energy (DOE) demanding fundamental market overhauls. PJM’s Board responded and signaled support for reforms, extending the capacity price cap through the 2029/2030 auction cycle.  

While these steps were aimed at containing volatility, the two most recent auctions (2026/2027 and 2027/2028) cleared at the cap.  

How 5CPs set your bill 

Your capacity obligation is based on your 5CP tag, or your average demand during PJM’s five system peak hours from the previous summer. Those hours are dependent on real-time load in PJM, but they can be anticipated using weather, load forecasts, and market signals. If you can reduce load or serve it behind the meter during those hours, you can materially cut next year’s capacity charges. 

Similarly, transmission charges are based on your demand during the Network System Peak Load (NSPL tag), which is the single highest peak load in your specific zone each year, and can be managed in a similar manner to the 5CPs. 

What decision‑makers can do now 

The nature of the challenge outlined here means there’s no one-size-fits-all response. The most effective approach blends active and passive measures, sequenced to your sites’ operational requirements and capital strategy. 

Businesses can begin by evaluating their electricity cost categories to understand how their operations drive their costs, then collaborating with operational teams to understand how you can fundamentally change your costs by adjusting how and when you consume electricity. 

Next, evaluate active measures, both dispatchable behind‑the‑meter resources, such as batteries, fuel cells, or other DERs and curtailment opportunities that can be activated during high system load events. These assets can target likely coincident peaks and can also provide backup power and year‑round demand‑charge reduction. Decide early whether to own or pursue third‑party financing, and factor in interconnection and permitting timelines, as well as emissions and ESG implications for fossil‑based options. 

Passive measures such as efficiency and on-site solar can also provide relief in capacity and transmission costs, albeit at risk. Beyond the traditional savings facilities can realize through efficiency and on‑site solar, these measures can also provide some relief during the 5 CPs if they are engaged and operating at the right time. The design of an on-site system, daily weather, and the timing of CPs can affect the impact of on-site solar on capacity and transmission charges, so the expected reductions and the risk of achieving those should be carefully considered. 

In parallel, optimize building and process efficiency to permanently lower kW under peak conditions. Tightening controls and streamlining processes reduces both capacity and energy charges year‑round, with added co‑benefits for comfort and productivity. Protect the business case by measuring and verifying that upgrades deliver demand reductions during likely 5CP windows. 

Finally, procure smarter: align your retail supply and pass‑through structures with your operational plan and consider products that reward verified 5CP performance. The point is to capture the value of peak‑shaving in supply costs and to avoid tariff surprises. 

Leaders that are succeeding in energy cost management in PJM are proactively managing load through operations changes or energy efficiency, layering DERs, using third‑party financing to move fast, and tracking results with annual recalibration as rates and site conditions change. 

How Trio helps 

Trio partners with large energy users to cut through complexity and deliver measurable savings.  

Trio can: 

• Perform feasibility assessments for distributed generation including onsite solar, batteries, and fuel cells, to quantify the savings potential of these technologies.  
• Carry out competitive solicitations for these systems on your behalf, advise on bid selection and contract negotiations, and support your team during construction to ensure a safe, effective installation. 
• Perform energy audits and guide you through the implementation of energy efficiency and load reduction measures. 
• Run competitive procurements and negotiate supply terms that reflect your operational strategy. 
• Assist in directly mitigating capacity and transmission related costs by evaluating 5CP and NSPL tag management or indirectly by guiding your participation in PJM's Demand Response program  

If capacity and transmission are inflating your electricity spend, now is the time to act. Contact Trio below to align your operations, assets, and supply strategy, and turn PJM’s peaks into predictable savings.